The week in review: Microsoft--so it's come to this

A federal judge concludes a dramatic and unusually swift antitrust trial by ordering the breakup of Microsoft, an earth-shaking prospect for the high-tech industry and the "new economy" at large.

6 min read
A federal judge concluded a dramatic and unusually swift antitrust trial by ordering the breakup of Microsoft, an earth-shaking prospect for the high-tech industry and the "new economy" at large.

As expected, Judge Thomas Penfield Jackson ruled the software giant may continue making operating system software for personal and server computers, information appliances, and other devices, but it must spin off its other software and Internet businesses, including Office, Outlook and the Microsoft Network. Microsoft immediately said it will appeal the breakup order.

What next?
In a brief but pointed ruling, Jackson affirmed earlier findings that Microsoft had abused its operating system monopoly and used it to squelch competition in related software markets, notably the browser market.

Calling the software giant "untrustworthy," Jackson concluded "a structural remedy has become imperative: Microsoft as it is presently organized and led is unwilling to accept the notion that it broke the law or accede to an order amending its conduct."

The Redmond, Wash.-based company hopes a right-leaning appellate court will look upon its business practices more favorably, especially because that court previously overruled a preliminary injunction granted by Jackson. But the government will ask that the appeal go directly to the Supreme Court. Thus, the matter could be resolved this year or drag on while the high-tech industry continues its rapid evolution.

Should the appeal fail, Microsoft would have one year to effect the split--and investors would have to choose between the two "baby Bills." Financial observers predicted an applications and Internet business would be more attractive than an operating systems company with a (presumably) dwindling share of the market.

Within the industry, reaction Special coverage: Breakupwas swift but mixed. Some of the strongest statements came from Microsoft's competitors, but a few companies leapt to Microsoft's defense.

Netscape co-founder Jim Clark, one of Microsoft's former chief adversaries, made an unlikely appeal: Break up Microsoft, but keep the Windows operating system and the Internet Explorer Web browser in the same company. It was an unexpected plea from a man who saw his own company plunge from the Net's heights, in large part because of the link between Windows and IE.

Within the high-tech industry, only IBM knows first-hand the consequences of antitrust litigation on its business. One firm pegged Microsoft's potential losses at $43 billion; the consequences for the American economy could be still broader.

Big bang?
IBM and several leading computer and communications industry players intend to launch a components marketplace by mid-July. Hitachi, Nortel Networks, Seagate Technology, Solectron, Toshiba, LG Electronics and Matsushita Electric claim to account for approximately $700 billion worth of goods and services bought and sold in the electronics industry.

Separately, IBM added application service provider Salesforce.com to a program that offers hardware, software, tech support and Web-hosting services for small businesses, while Microsoft and Cable & Wireless allied with Compaq Computer to host Microsoft products for small and medium-sized businesses. But the growing market has yet to fulfill the promise foreseen by hardware makers.

Ingram Micro will offer its procurement and fulfillment services to companies looking to get into e-commerce. The wholesaler is counting on its experience in the logistics of inventory, orders and returns, and delivery.

Branching out
Palm acquired email software maker Actual Software, continuing a post-IPO shopping spree that's part of the company's diversification strategy. Another part of the plan includes augmenting hardware sales with licensing the company's operating system and wireless services. The approach gained impetus with last month's admission that Palm has been having trouble procuring enough LCDs and flash memory chips to keep up with demand.

One-time upstart Sycamore Networks agreed to purchase Sirocco Systems for $2.88 billion in stock, having recently been outbid for Chromatis Networks by rival Lucent Technologies. Fiber-optic equipment technology is in great demand thanks to the expanding traffic from high-speed Internet connections and mobile phones.

Personnel shakeouts
Layoffs at respected online magazine Salon.com and Oprah Winfrey-backed Oxygen Media followed news that APBnews.com ran out of money and laid off its entire staff of 140. The developments are a clear sign that the financial problems that have recently wracked dot-com companies will not be limited to online retailers, many of which have been teetering since March.

Also laying off a large part of its work force was struggling Canadian software maker Corel, which cut 320 jobs, or 21 percent of its work force, as part of a $40 million cost-cutting measure.

Every which way
Transmeta plans to showcase corporate notebooks using its processors at PC Expo later this month and later will diversify its product line to offer capabilities for different devices. Models from Compaq, Gateway (both Transmeta investors) and IBM are likely to incorporate the Intel challenger. The start-up's early success appears to be contributing to PC semiconductor market fragmentation. Separately, Via Technologies introduced a new round of microprocessors for low-budget PCs, but the company's chipsets are more of a threat to Intel.

For its part, the Santa Clara, Calif., giant delayed by several months the launch of its first integrated processor, code-named Tinma, because it needs to develop a new method for connecting the chip to standard memory. Tinma had been designed for Rambus. The delay is not expected to hurt Intel financially but adds to a series of product mishaps.

The high price of display screens, among other components, is keeping the price of home terminals, Web pads and other next-generation Internet access devices relatively high compared with those for low-priced PCs, putting device manufacturers at a competitive disadvantage. Designed to be easier to use than PCs, appliances can potentially attract new customers to the Internet, but consumers expect appliances to be both cheap and stylish.

Akamai Technologies will release its speedy Web network to offer conference calls and videoconferencing online and already has managed to attract such brand-name customers as AT&T, WorldCom, Global Crossing and ACT Teleconferencing. Also this week, Akamai launched a service that acts as a kind of traffic cop for a site's entire Web traffic, directing people to the nearest or fastest Web-hosting center. Previously, the company helped speed only individual pieces of Web sites, such as individual graphics or streaming media presentations.

Several communications and networking equipment companies are developing technology to help local phone companies deliver high-speed Internet access to suburban homes and businesses, which have inadvertently been blocked from offering the desirable Net access lines by older network gear designed for voice connections. The goal is to extend the range of digital subscriber line (DSL) systems, still limited by distances of roughly three miles over standard copper phone wires.

Also of note
MP3.com settled a copyright infringement lawsuit with Time Warner's Warner Music Group and Bertelsmann's BMG Entertainment...The Democratic National Committee said it will begin offering free Internet access, and the Republicans launched a new portal, GOP.gov...The worldwide semiconductor market is expected to grow by at least 12 percent through 2003...Open-source site Collab.Net received a $35 million investment from Dell, Oracle, TurboLinux, Novell, Hewlett-Packard and others...ToyTime.com joined the fast-growing list of online toy stores to shut their doors...Mobile phone customers are being targeted by a new computer virus that Internet security experts call the first of its kind...Intel's Andy Grove testified in favor of taxing sales over the Internet, breaking with many high-tech firms...AT&T will begin allowing competing Internet service providers to use its cable systems for high-speed Net access for the first time in trials later this year...A dial-up modem company 3Com bought in 1997 will revert to its former name when it is spun off: U.S. Robotics.